The Pros and Cons of Corporate Taxes

25 04 2011

First of all, what is a corporate tax? It is the tax on income or capital of certain types of legal entities, or simply put, taxes on corporations. The usual practice is to impose the taxes on net taxable income, which is the gross income after it has been accounted for deductions and credits. In politics, a few argue to cut corporate taxes, others desire to increase them. But ultimately, what does the corporate tax do?

Pros

A Source of Revenue:

Ultimately, a tax is either used to gain revenue for the government. Corporate taxes effectively do this because corporations are the largest money makes in the economy. This means a steady and strong flow of cash for the government revenue. During the recession (2009), a figure of 30.4 billion was made on corporate taxes of 10 corporations alone. This shows that, by targeting those making large profits, a government can make gains when companies do. It increases the revenue of the government which may be used towards national debt or public services.

For the Greater Good:

Another point is that the benefits seem to outweigh the negatives. The tax is effective in that it takes from large companies and distributes the benefit to everybody. The taxes may take some money away from businesses but ultimately it is not harmful. It still allows for businesses to function and grow and do not overly inhibit companies’ ability to make profit.

Equitable:

This tax is equitable in that everybody pays taxes. Corporations should not be an exception. Since corporations exist in the country, they benefit from the country’s policies and services. If corporations were not taxed, they would be getting a free ride on services. As a part of society, it is equitable for corporations to pay taxes.

Cons

Target of Taxes Misses the Mark:

The fact is, although corporate taxes are meant to tax wealthy companies, the costs actually end up being sent somewhere else. The groups that end up getting the burden of these taxes are none other than the consumer and the worker. Workers are affected in that the costs of the tax either reduce their salaries or hiring. While consumers are affected in that the company passes on the tax in their products and services by making them more expensive.

Attack on Corporations:

In addition to that, another con of the corporate tax system is that it takes away funds from companies/corporations. This is economically inefficient, because in an economically efficient situation, no one can be made better off without making someone else worse off. Corporate taxes end up making companies worse off than if they were not being taxed.

Scares away Business:

Lastly one must consider the economic growth in a country. Companies try to pick the best place that can facilitate their growth, where they could be the most profitable. By introducing a corporate tax in a certain country, companies may avoid it and search for other alternatives. Some may turn to tax shelters like the Cayman Islands; others just search for locales that have lesser taxes. Quite simply, a corporate tax can scare away potential and current investors to other countries, leading to a reduction of economic activity.





Taxes – Part 2

21 04 2011

Once you have completed part one, read over the party platforms on taxes and economic policies.  This page on the Globe and Mail is a good starting point.  There are links to each party’s website where there are more details.

Which party platform do you prefer?  Comment and give reasons on this post.





Taxes – Part 1

21 04 2011

The government of Will World has decided it is necessary to increase taxes.  They are considering four different options:

  • A 15% tax on business profits
  • An 8% sales tax
  • A increase in income taxes by 5%
  • A tarriff on energy imports of $5 per unit (excise tax)

Before we look at the best tax for Will World, lets consider taxes in general.

  • Income Taxes – Unicorn
  • Sales Taxes – LGT
  • Corporate Taxes – Magnum
  • Property Taxes – SINJ
  • Capital Gains Taxes – CDsquaredK
  • Excise Taxes (includes ‘sin’ taxes, tariffs) – Mangoe

Each group has been assigned a tax. In your groups, research your assigned tax and develop the three most convincing arguments for why your tax is the best option and the three most convincing arguments for why your tax worst option.

Criteria for a ‘good’ tax:

  • Raises sufficient funds for the government (we aren’t looking for a specific dollar value but the tax has to be effective at actually raising revenue for the government)
  • Equitable (this is difficult to define when discussing taxes – consider who bares most of the burden of paying the tax – it is equal? fair?)
  • Minimizes inefficiencies while maximizing social benefit – any tax will reduce the efficiency of the economy, you want to minimize this while providing the maximum social benefit possible. (social benefits can include encouraging positive behaviour, reducing negative externalities, reducing inequality, increasing standard of living, etc.)
Create a blog post that summarizes your tax.  Briefly describe it and your three arguments for and against your tax.
For homework, read over all the posts and comment on which tax you think is ‘best’ on this post.